GSE Regulator Wants More Control Over Budget

Hoping to tighten oversight of Fannie Mae and Freddie Mac, the director of the Office of Federal Housing Enterprise Oversight said he plans to ask Congress to broaden his agency's mission and remove its budget from the appropriations process.

"We are at a point where we have to take a broader look at the government-sponsored enterprises and the mortgage market," director Armando Falcon said this week. "We need to assess safety and soundness of new activities [of the GSEs], and we need to thoroughly understand the big picture, because the mortgage market is interrelated."

The plan is one of several afoot as regulators and legislators in Washington focus on the rapidly changing secondary market for mortgage loans. Republicans on the House Banking Committee are studying a move to separate Ginnie Mae, which buys VA and FHA loans, from the Department of Housing and Urban Development.

Rep. Richard H. Baker, R-La., chairman of the House subcommittee that oversees the enterprises, also plans to introduce legislation that would merge Mr. Falcon's office, which monitors the capital adequacy of Fannie Mae and Freddie Mac, with the Federal Housing Finance Board, which oversees the Federal Home Loan Bank System.

Mr. Falcon said that for his office to do its job, Congress needs to remove it from the appropriations process. "I need the flexibility every other regulator has on a real-time basis to match resource needs with resources," he said

The government-sponsored enterprises have been the subject of intensifying scrutiny in the past year, including that from FM Watch, a mortgage lenders' group formed last year to monitor the GSEs' activities.

Mr. Falcon said the goal of the Office of Federal Housing Enterprise Oversight, which was created in 1992 as an independent agency under HUD, is to ensure the financial safety and soundness of the GSEs. Their dominance of the mortgage market means OFHEO must take a "broader view of its mission," he said.

The office will step up research and analysis of changes in the market, including automated underwriting systems, competition in the market, credit scoring, and new activities of the enterprises, Mr. Falcon said.

"We must do so because all the participants in the mortgage market are firmly intertwined and dependent on each other," he said in a speech at the National Real Estate Lending Conference of America's Community Bankers. "Our secondary mortgage market is the safest and most efficient in the world. I will work to keep it that way.

"We must understand the impact of the enterprises' growth and new activities on the entire mortgage market and its participants."

Fannie and Freddie have doubled in size since his office was created, Mr. Falcon said, and their influence now extends to every step of the mortgage process.

Though he lavished praise on the enterprises for helping to create a more efficient, affordable housing market, he expressed concerns about pressures on them to maintain shareholder returns. He said that the safety and soundness of profit targets, such as the goal set by Fannie Mae to double its profits in five years, need to be analyzed.

A Freddie Mac spokeswoman said that it is "hard to speculate" on what Mr. Falcon means by broadening his office's mission. "OFHEO is our safety and soundness regulator," she said. "It's perfectly appropriate for OFHEO to assess risk, and we would expect them to do that." But Mr. Falcon's office "is not our mission regulator - HUD is."

Mr. Falcon also noted "tension" between the GSEs and the private-sector participants in the mortgage market - tension stemming from the perception that the "enterprises' movement into more nontraditional activities is a strategic threat to their business."

He listed some of the benefits that Fannie and Freddie receive to fulfill their mission to provide more affordable housing, including exemption from state and local income tax, a potential line of credit of $2.5 billion, and most significantly, the treatment of their securities in the market as if they were guaranteed by the federal government.

This treatment "allows the enterprises to borrow money more cheaply than fully private AAA-rated companies and almost as cheaply as the U.S. Treasury," Mr. Falcon said.

The GSEs' automated underwriting systems, as well as their entry into the subprime and home equity market, contributed to the decision to broaden the oversight offfice's mission, Mr. Falcon said. Home equity, he said, is being used to finance many consumer needs, not just houses. "People are using home equity more and more to finance their consumer needs, and the GSEs are taking more of a role in supplying home equity loans."

Mr. Falcon emphasized that his office would make no value judgements in broadening its research and analysis. "I want to be and will be an unbiased, nonpartisan, and just-do-the-right-thing kind of regulator," he said.

14-Day Free Trial

The increasing adoption of virtual card payments by accounts payable departments has created an unex­pected complication for suppliers: more friction in the processing, posting and reconciliation of payments and receivables. The root of the problem is that most suppliers rely on a manual approach to processing e-mailed virtual card payments. Suppliers are forced to balance their organization’s need for operational efficiency and control with rising customer demand to pay with a virtual card. But a new breed of tech­nology enables suppliers to process virtual card payments straight-through, addressing the needs of buyers and suppliers. This paper details the growth of electronic business-to-business (B2B) payments, shows how manual approaches to processing virtual card payments cause friction in accounts receivables, describes a way to process virtual card payments straight-through, and highlights the benefits of friction­less payments.